Thoughts on the Markets

Friday, September 18, 2009

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The market has continued its incredible rally the last couple months now trading 56% off the lows. I have argued for short opportunities twice in this rally and found myself quickly proven wrong. Granted, I have kept the long XLK and long OIH positions alive for the long-term, but I have looked for short-term active shorting opportunities. But, I've been wrong and any minor pull-in has been quickly bought by the bulls.

Our gold position is working very nicely with prices now consolidating above the $1,000 level. The move higher in gold has been inextricably linked to the move higher in equity markets. For gold to make our anticipated move higher, I would expect it to decouple from the equity markets. For now, we have great prices in the GLD ETF and it's just a waiting game. The expected move with either happen, or it won't. With a cost basis from much lower, we will wait for the trade to trigger through the all-time highs of $100.44 before adding more to the position. It should work according to our thesis and we are patient.

I believe it was Peter Lynch who said something to the effect of: "The best returns in the stock market are generated when the state of the economy goes from horrible to bad." This year's rally off the March lows has been a great lesson in this dynamic. The turn and ensuing rally produced rapid phenomenal profits for those with the insight enough to see the turn and the stomach to hold a steep rebound in prices after witnessing last year's collapse in prices. I am trying to deeply engrave this concept in my mind for the next bear market.

In the short-term, the markets are continuing their trek higher without so much as a pause. Many a financial pundit has been proven incorrect in their sell calls, myself included. This week though, a couple short opportunities have presented themselves. A short in the casino stocks on Wednesday and GE yesterday provided something for the bears out there. Yet, after the initial move, there was not much follow-through. All we can say is don't fight the tape, ride the wave with stops to protect profits.

2 comments:

Mr. Zulu said...

Thank you for your candid opinion!

Name: Brandon Rowley said...

Thank you Mr. Zulu! How is Indonesia treating you?

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